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Russian milling wheat: an unpredictable season

During the last time, milling wheat attracts a lot of attention of the market participants as well as grain market experts. The current season for the Russian market of milling wheat was rather intensive, and the crop failure played the crucial role in the situation development on the market.

Prices increase period

During the harvesting campaign in the beginning of 2010/11 there were worried rumors for the Russian market of milling wheat. Due to the unfavorable weather conditions during the season, agrarians harvested the records low level of milling wheat. According to data of APK-Inform Agency, as of November 1, 2010, milling wheat production totaled 42 mln tonnes. The current situation in the beginning of the harvesting campaign caused the agiotage on the market and attracted attention of the Government of the Russian Federation. So the authorities accepted the decision which should have regulated the prices situation on the market and provide the domestic market with grains. It was based on grain export ban from the territory of the Russian Federation. The Decree came into force on August 15, 2010, and was valid to December 31, 2010. However, later the Government prolonged its valid term to July 2011. The agrarians changed their trade policy: grain prices increase essentially slowed down; meanwhile there was the sufficient supply volume of grains on the market. The fact that the export-oriented companies left the market slowed down the prices growth too.

At the same time, milling enterprises had the positive reaction for the current decision of the Government. The sharp increase of grain prices caused the milling commodities prices growth, which later affected the end consumers (bakery products prices increase). Due to the stated facts, the Government ordered to the Federal Antimonopoly Service to control price formation for milling commodities. It was not good prospect for flour millers to cooperate with the stated organization, and grain prices stabilization was more acceptable for them as opposed to active prices increase.

But export-oriented enterprises, who already signed the contracts with the potential buyers of Russian wheat, did not like the reporting Decree. Therefore, traders bored the costs due to non-fulfillment of the contracts.

The export ban imposition temporarily stopped agiotage on the market, but at the end of September, milling wheat market faced the new prices increase.

In the current season due to rather unfavorable weather conditions during the harvesting campaign, most of the regions had only minimal grain stocks, so agrarians from the stated regions did not try to realize wheat expecting for the prices increase. Due to the stated fact, buyers had to purchase wheat from other regions.

The wheat market faced the demand agiotage again. The sellers from other regions increased the prices due to the strong demand in grains from the most suffered regions.

There were two options of the situation development: the first was to realize the intervention trades in order to stabilize the situation on the market; the second – to decrease the tariffs for milling wheat regional transportation by railway lines. The Government chose the second option.

Period of prices decrease

After the New Year holidays the market participants started the active work and during the first half of January 2011 tried to study the market. However, by the end of the reported month, the situation on the market became worse and the prices increase renewed. It was based on information that the wheat stocks in the country essentially decreased.

Due to the current situation, the Government accepted the decision to realize the intervention trades in order to prevent the further prices increase. The stated information affected the market. The buyers started purchasing the Government wheat despite the difficulties with the documents preparation, and completely stopped buying wheat on the domestic market.

Grain owners faced the buyers’ activity decrease on the market. Therefore, they had to stop selling prices increase, and later even decreased them.

It is necessary to note that realization of intervention trades was very important for the further grain price situation realization on the grain market during the current season. A lot of market participants used to note that during the nearest time the prices will start increasing again. But their expectation did not become true.

In April 2011 the market situation did not essentially changed. The buyers started decreasing own purchasing prices, but they used to realize grain purchasing only if it was necessary. Also, a lot of market participants stated about increasing of the number of grain offers on the market, which contradicted to the market talks about grain volume shortage.

But during the stated period buyers did not face the essential interest in purchasing the intervention grains. It was clear that the stated fact played its role on the market, and the further intervention trade realization was not acceptable.

In May 2011 milling wheat prices stabilized due to the market talks about the further grain export opening. The minimum milling wheat prices faced an increase by end of the month. However, the market participants do not expect for the essential growth of wheat prices.

In the current season, the grain export ban imposition caused the certain difficulties for work of Russian export-oriented companies. Grain exporters had to divide the directions of own activity at the expense of the new sales markets development, in particular the oilseeds market. Meanwhile, after formation of the grain volume during period of the harvesting campaign, the certain export-oriented companies started operating on the domestic market as grain sellers.

The current 2010/11 MY was rather difficult. The grain crop failure caused wheat prices increase during the first half of the stated season, the commodities interventions realization caused the prices decrease during the second half of the MY, and essentially complicated the activity of the market participants. The current season strengthened the market participants, and they will be ready for almost any surprises.

However, it is necessary to remember that the market is always full of surprises – pleasant and not as well. The new MY is coming and it will be unique as always. The new crop prospects look well, and according to the analysts forecast, the country will harvest more grain volume as opposed to the present season. It is necessary to note that you will find the details about tendencies and prospects of the Russian market of grains not only in the news of mass-media, but also at one of the discussion areas of the CIS within the conference Grain Forum - 2011, which takes place in Yalta on June 23-24, 2011.

The above information can be used only with a clear reference to APK-Inform Information Agency, in electronic informational products - with a hyperlink to <a href="http://www.apk-inform.com">www.apk-inform.com</a>